Document Type
Discussion Paper
Publication Date
7-2019
CFDP Number
2184R2
CFDP Revision Date
7-29-2022
CFDP Pages
45
Journal of Economic Literature (JEL) Code(s)
C10, C12
Abstract
This paper is concerned with possible model misspecification in moment inequality models. Two issues are addressed. First, standard tests and confidence sets for the true parameter in the moment inequality literature are not robust to model misspecification in the sense that they exhibit spurious precision when the identified set is empty. This paper introduces tests and confidence sets that provide correct asymptotic inference for a pseudo-true parameter in such scenarios, and hence, do not suffer from spurious precision. Second, specification tests have relatively low power against a range of misspecified models. Thus, failure to reject the null of correct specification does not necessarily provide evidence of correct specification. That is, model specification tests are subject to the problem that absence of evidence is not evidence of absence. This paper develops new diagnostics for model misspecification in moment inequality models that do not suffer from this problem.
Recommended Citation
Andrews, Donald W.K. and Kwon, Soonwoo, "Misspecified Moment Inequality Models: Inference and Diagnostics" (2019). Cowles Foundation Discussion Papers. 2706.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2706
Supplemental Material to Misspecified Moment Inequality Models: Inference and Diagnostics